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Spotify Close to a Deal With EMI

By Ben Sisario January 28, 2011 2:17 pmJanuary 28, 2011 2:17 pm

Spotify, a digital music service that has been popular in Europe but met roadblocks in its plans to enter the American market, is inching closer to its goal. A week after it signed an arrangement with Sony Music Entertainment for distribution in the United States, the company is very close to closing a deal with EMI Music, according to a person with knowledge of the negotiations but who was not authorized to discuss them.

Spokesmen for EMI and Spotify declined to comment.

If a contract is signed, as is expected soon, it would give Spotify a strong beachhead in America, with two of the four major labels on board. But a deal with the Universal Music Group, the largest of the labels, has been elusive, and people with knowledge of those talks say that no agreement is imminent. Universal has a 31 percent market share of music sales in the United States, according to Nielsen SoundScan; Sony and EMI combined have 37 percent.

Terms of the deal are not known. But executives at various labels say that in their long negotiations with Spotify — the company has made many promises of an arrival in America, going back more than a year — the sticking point has been the company’s business model. Spotify streams music from a large catalog licensed from the labels, using the so-called freemium payment model, in which users can opt for a free, ad-supported usage agreement or a paid, ad-free subscription. Last year, Spotify said it had 10 million users in seven countries in Europe, 750,000 of them paid subscribers. The company has also said that in 2009 it lost about $27 million.

Many music executives are said to view Spotify’s ratio of free to paid users as too low, and some have expressed concern that services like it generate too little revenue and could jeopardize the far more lucrative download sales through companies like iTunes and Amazon. In a conference call with analysts last year, Edgar Bronfman Jr., the chairman and chief executive of the Warner Music Group — which has about 20 percent market share of sales in the United States — told analysts, “Free streaming services are clearly not net positive for the industry.”